Computer Sciences Corp., in a key move to fortify its position in the federal outsourcing and services market, today announced it will merge with Nichols Research Corp. in a stock transaction valued at $391 million.

Each share of Nichols, an IT services firm based in Huntsville, Ala., will be converted into .423 shares of CSC, which based on the closing price of the stock on Friday will mean $391 million to Nichols' shareholders. CSC will also assume all of Nichols' outstanding stock options. Nichols' shareholders still must approve the merger.

Nichols, which has 3,000 employees at 30 locations nationwide, reported $455 million in revenue in the last fiscal year.

CSC officials could not be reached immediately for comment.

A player in the federal market

In a prepared statement, CSC Chairman and CEO Van Honeycutt said that the merger will complement three business areas: U.S. federal, health care and commercial consulting.

"Their services are well-respected in the U.S. federal defense and intelligence areas, as well as within other U.S. civil agencies," Honeycutt said.

The federal market accounts for about 80 percent of Nichols' revenue, with a backlog in contracts worth more than $1.2 billion. In addition, the company has worked with the Army, Air Force, Navy and intelligence agencies.

Nichols already provides IT for the Huntsville-based Redstone Arsenal, home to several Army organizations. Honeycutt said, "We also expect Huntsville to be one of the first Army organizations to outsource its IT infrastructure, and the combination of CSC and Nichols will place us in a strong position to capture this work."

Health care, meanwhile, accounts for 10 percent of Nichols' revenue.

In the commercial consulting area, about 220 Nichols consultants will join CSC's Consulting Group to develop services for corporate and state government clients.

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